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Lifetime trusts or asset protection trusts

The ownership of assets, such as property, antiques or other valuables, can be transferred through lifetime trusts while a person is still alive rather than giving them directly to a person. This is the opposite to will trusts, which only come into effect when a person dies.

Assets are placed into a lifetime trust that is legally managed by one or more appointed trustees. Any amount of assets can be placed into a lifetime trust, but any more than £450,000 per person or £900,000 per married couple (2018–19) could mean that the assets are still included in your estate and liable for Inheritance Tax when you die.

On the Which? Money website we explain how, from 1 April 2018, you can also pass on an extra £125,000 per person tax free if what you are passing on includes your home.

If you live for more than seven years after creating the trust, assets would not form part of your estate. The HMRC website has more information about trusts and taxes.

Why consider a lifetime trust?

There are several reasons why someone might want to consider a lifetime trust. For example:

they might want to pass assets on to a minor or someone with limited mental capacity who needs the help of trustees to manage their finances

to ‘protect’ their assets from being included in the financial assessment for care costs.

But placing assets in a trust is unlikely to help you to avoid care home charges. When the local authority carries out the financial assessment for care, any assets that you have moved into a trust could be seen as deliberate deprivation of assets, meaning that the local authority might still be able to take their value into account. This is explained further in our article gifting assets: what are the rules?

There are several other things to take into account when considering a lifetime trust.

Setup fees can be expensive.

You will lose ownership of your assets – although, you may be able to maintain some level of control if you have appointed yourself as a trustee.

Once the assets have been transferred to the trust, you can’t change your mind, give the money to someone else or spend it as if it was still your own. This could put you in a very vulnerable position should you need funds later on.

If you’re thinking about setting up a lifetime trust it’s vital that you seek independent financial advice from a specialist accredited later life adviser, such as a fully listed member of the Society of Later Life Advisers (SOLLA).

Society of Later Life Advisers (SOLLA)

By choosing an accredited member of the Society, you can be assured of someone with the expertise to best understand your needs to provide advice that is right for you and your family.

Other things to consider about gifting assets

It’s permanent: there’s no going back. Once you have given a gift to someone, you can’t change your mind.

Loss of financial security: assets might be needed for other unforeseen costs in the future. You might want to move house or pay for care at home services, for example. If you have disposed of assets, you might not have money when you need it for other things.

Loss of choice and control: reducing assets will leave you financially vulnerable and limit the choices you have in the future.

Situations/relationships can change: someone that you trust to ‘hold on to’ a valuable asset, or own your property ‘in name only’ and pass money to you at a later date, might not always live up to their end of the bargain.

Divorce/bankruptcy: you might give your house to someone on the understanding that they can stay living there. If the person receiving the gift gets divorced or goes bankrupt, however, the house may have to be sold to form part of a divorce or bankruptcy settlement. This could leave you homeless.

Capital Gains Tax: if you, or the person that you give the gift to, makes a profit from that asset you may be liable for Capital Gains Tax. This is often the case with second homes. Read Which? Money’s guide to Capital Gains Tax for more information.